Nomination On Insurance Policies – Facts and New Changes

Nomination On Insurance Policies – Facts and New Changes. Nomination is a right conferred by the section 39 of the Insurance Act 1938 on the holder of a Policy of Life Assurance (on his own life) to appoint a person/s to receive policy moneys in the event of the policy becoming a claim by the assured’s death. As per the act, a nominee is a trustee and not the owner of the assets. In other words, he is only a caretaker of your assets. The nominee will only hold your money/asset as a trustee and will be legally bound to transfer it to the legal heirs.

An Insurance policy is primarily supposed to protect the dependants of the life assured, financially, on the unfortunate event of his/her death. But as per the act, nominating someone shall not necessarily mean that the nominee would be the ultimate beneficiary of the insurance money. This naturally created confusion because policyholders thought that the nominees they specified would be the eventual beneficiaries if they died.

With the implementation of Insurance (Amendment) Act 2015, the afore-mentioned lacunae has been effectively fixed. It protects the interest of the policy holder and facilitate the easy flow of the claim amount to the desired nominees. For that it has brought in a new concept called beneficial nominees.

According to the new rules, when a policyholder nominates his immediate family members such as parents, spouse or children, then the nominee or nominees will be beneficially entitled to the amount payable by the insurer. In other words if a beneficial nominee is available in the policy at the time of claim, other legal heirs will not have any claim on the money.

Further to add, the new rules give rights to the nominee to collect the insurance money even on maturity of the policy in the event of the policyholder’s death. Before the amendment Act, a nominee had the right to collect the policy money only upon death of the life assured during the term of the policy, but not if a policyholder survived till maturity, but died before getting the maturity corpus.

Nomination on Insurance Policies – Points to remember

Nomination can be done only if the policy holder and the life assured are same. Thus the nomination is not possible on the policies where life assured is a minor (where the policy holder is the proposer).

When a nominee is a minor, an appointee may be appointed to receive the policy moneys in the of death of the life assured during the minority of the nominee. The appointee should be a major person.

Nominee will not be entitled for any right in the policy other than the claim amount in the unfortunate death of the policy holder. The policy continues to be part of the estate of life assured and he can deal with the policy in any manner without the consent of the nominee.

The policy holder can make changes to the nomination any number of times according to his will.

Nomination has to be done in the favour of a close relative only. Preferable in the favour of spouse and children. Underwriter may question the nomination, if not done in the favour of close relatives and will complete the policy if the answer provided is satisfactory.

Policies which are issued under section 6 of Married women’s property act, are out of purview of sec 39 of insurance act. Hence nomination under MWP act policies is not possible. Policies having nomination, subsequently converted in to married women’s property act, cancels the nomination.

If policy is financed from HUF, it would belong to the HUF entirely & policy moneys would be payable only to the karta of HUF. Hence nomination cannot be made under a policy financed from HUF fund.

Nomination Vs Assignment – Key differences

Nomination Vs Assignment

Basis for comparison

Nomination

Assignment

Meaning

Appointment of a person, by the policy holder to receive the policy benefits, on the event of death of the policy holder

Transfer of right, title and interest of the policy to another person.

Favour

Generally made in favour of immediate relatives

Assignment can be done in favour of any person or firm

Consideration

It does not involves consideration

It may involve consideration

Condition

No conditions specified

Assignment can be absolute with no conditions or conditional based on the situation.

Who can make changes

Only policy holder can change nomination

Assignee can further assign the policy if he enjoys full rights in the policy (Absolute assignment)

Anish L J is a 'Financial Planner' and member of Chartered Insurance Institute(CII), London. He is also a finance, insurance and software consultant with more than 20 years of experience in these fields. He thoroughly follows developments in insurance and finance. 'INSURANCE FUNDA' (www.insurancefunda.in) is his endeavor to provide simple and solid solutions in the Insurance and Finance sectors.

Anish L J

Anish L J is a 'Financial Planner' and member of Chartered Insurance Institute(CII), London. He is also a finance, insurance and software consultant with more than 20 years of experience in these fields. He thoroughly follows developments in insurance and finance. 'INSURANCE FUNDA' (www.insurancefunda.in) is his endeavor to provide simple and solid solutions in the Insurance and Finance sectors.